Report Is a Win for American Wheat Farmers: Calls for Reform of Canada’s Discriminatory Grain Distribution
System

WASHINGTON - U.S. Trade Representative Robert B. Zoellick announced today that a
World Trade Organization (WTO) panel has agreed with the United States that Canada’s
grain distribution system is unfair and violates Canada’s WTO obligations. This result is
consistent with a long history of WTO rulings that additional regulatory hurdles cannot
be placed only on foreign products. The panel accepted the U.S. claims that Canada’s
grain handling system and Canada’s rail transportation measure known as the "rail
revenue cap" discriminate against foreign grain.

"This is a win for American farmers. The WTO found that Canada unfairly discriminates
against American wheat and grains," Zoellick said. "In matters involving dairy, lumber,
and now wheat, the United States has successfully prevailed at the WTO on key issues
concerning unfair Canadian practices."

The panel found against the United States with respect to the unfair practices of the
Canadian Wheat Board. The panel found that WTO rules do not prevent state trading
enterprises like the Canadian Wheat Board from using their monopolistic privileges to the
disadvantage of commercial actors.

"The finding regarding the Canadian Wheat Board demonstrates the need to strengthen
rules on state trading enterprises in the WTO," Zoellick said. "The United States will
continue through the WTO negotiations to aggressively pursue reform of the WTO rules
in an effort to create an effective regime to address the unfair monopolistic practices of
state trading enterprises like the Canadian Wheat Board.

"
In the last six months, the Canadian Wheat Board announced that it overpaid Canadian
farmers for their 2002 wheat crop by $65 million. The Government of Canada will
pay the Canadian Wheat Board to make up this shortfall. Although not a part of the
WTO case, it is an example of one of the many special privileges granted to the Canadian
Wheat Board by the Canadian Government that makes it difficult for private sector actors
to compete on a level playing field with the Canadian Wheat Board.

The WTO panel sided with the United States on most of the claims in this dispute.

(2) Canada’s "rail revenue cap," which may result in lower rail transportation rates for
the Canadian Wheat Board than for imported grain, also violates national treatment
principles.

(3) Canada’s prohibition on mixing foreign grain with Eastern Canadian grain also
violates national treatment principles.

The panel did not find that the Canadian Wheat Board export regime violates Canada's
obligations under GATT Article XVII governing the behavior of state trading enterprises.

Both the United States and Canada each may appeal the report. The United States is
currently reviewing its options regarding appeal. If neither party appeals, the report
could be adopted by the WTO.

BACKGROUND

The United States filed this dispute against Canada in the World Trade Organization
(WTO) challenging the unfair and burdensome requirements that the Canadian grain
handling system places on imported grain, including U.S. grain, and certain
discriminatory aspects of the rail transportation system in Canada. The dispute also
challenges monopolistic wheat trading practices of the Canadian Wheat Board (CWB).
The United States believes that these unfair practices put American farmers at a
disadvantage and undermine the integrity of the international trading system.

The United States requested consultations with Canada on these issues in December
2002, but the parties failed to resolve their differences. A panel was first established on
March 31, 2003. The panel issued an interim report to the parties on December 22, 2003.

This WTO challenge followed from a Section 301 investigation completed in February
2002. At the conclusion of the investigation, the Administration set forth an aggressive
four-prong program to seek relief for American wheat farmers from the unfair trading
practices of the Canadian Wheat Board and the Canadian Government. One of these
initiatives was the filing of this WTO challenge.

The other parts of the Administration's action plan included support for U.S. industry's
antidumping and countervailing duty petitions related to imports of durum wheat and
hard red spring wheat from Canada. In October 2003 the Commerce Department
imposed antidumping and countervailing duties on Canadian hard red spring wheat.
USTR also has worked to identify impediments to U.S. wheat entering Canada. The part
of the WTO dispute regarding Canada's grain handling and rail transportation systems is
a direct result of that investigation. Finally, through the WTO negotiations, the United
States has aggressively pursued permanent reform of monopolistic export state trading
enterprises such as the Canadian Wheat Board. The United States has made solid
progress in those negotiations, gaining international support for the U.S. proposal on
export state trading enterprises.